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 Carbon Taxes, Path Dependency and Directed Technical Change: Evidence from the Auto Industry Philippe Aghion, Harvard University Antoine Dechezleprêtre, Grantham Research Institute on Climate Change and the Environment and Centre for Economic Performance, London School of Economics David Hemous, INSEAD Ralf Martin, Imperial College Business School and Centre for Economic Performance, London School of Economics John Van Reenen, Centre for Economic Performance, London School of Economics and NBER
ABSTRACT: Can directed technical change be used to combat climate change? We construct new firm-level panel data on auto industry innovation distinguishing between “dirty” (internal combustion engine) and “clean” (e.g. electric and hybrid) patents across 80 countries over several decades. We show that firms tend to innovate relatively more in clean technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation both from aggregate spillovers and from the firm's own innovation history. Using our model we simulate the increases in carbon taxes needed to allow clean to overtake dirty technologies.
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